HLL was witness to selling on Monday as the market reckoned that a prolonged war would prove costly for the fortunes of FMCG companies.

The scrip of the FMCG giant was the biggest loser so far (by 12:40 IST) on the BSE Sensex, dropping 3.10% to Rs 157.95. Over 174,000 Hindustan Lever shares were traded on BSE thus far.

In the four sessions between 17 and 22 March 2003, the scrip of HLL, in contrast, had risen 6.2% to Rs 163 from Rs 153.50. Earlier, between 24 February and 17 March 2003, the scrip lost 12% from Rs 174.30.

Offloading by operators is being witnessed on the HLL counter on Monday. The general lack of buying support is also depressing the heavyweight stock. The market reckons that a prolonged war will prove costly for the fortunes of the company.

Reports have surfaced that 60-65 brokers (from both BSE and NSE) are surrendering their memberships in anticipation of not being able to meet their liabilities on account of the turnover tax to be paid by 31 March 2003. This is acting further against the scrip. In fact, some more brokers are expected to hand in their cards as the 31 March 2003 deadline for the broking community to pay up at least 50% of their turnover tax dues or face suspension draws closer.

Already there are concerns over the company's performance in the current quarter. The market fears that domestic sales of FMCG and pharmaceutical companies may be adversely affected due to the introduction of the uniform Value Added Tax at the rate of 12.5% from 1 April 2003, replacing the sales tax levied by various state governments. Due to this, many drug and FMCG dealers have cut down their existing inventories and are postponing fresh intake until April 2003, when there will be more clarity on VAT.

The current rate of sales tax is around 7 to 8% on an average, across the country. However, the uniform VAT is fixed at 12.5%. In addition, considering the trade discounts and commissions, the effective rate is likely to be around 15.5%. Further, the industry is also worried about the treatment of stock-in-trade of goods at the wholesaler and the retailer end. As a result, some of the wholesalers and retailers have requested companies to take back stocks as of 31 March 2003, while a few others have substantially reduced their purchases.

For the full year ended 31 December 2002, HLL recorded a 7% growth in bottom line to Rs 1,755.68 crore (Rs 17.55 billion), but a 7% drop in top line to Rs 9,954.85 crore (Rs 99.54 billion). For the fourth quarter ended 31 December 2002, HLL registered a 7% growth in bottom line to Rs 466.51 crore (Rs 4.66 billion) on a 2% decline in top line to Rs 2634.5 crore (Rs 26.34 billion).

As on 31 December 2002, the promoters' holding in HLL was 51.6%, while the public, domestic institutions and FIIs held 21.4%, 13.4% and 12.83%, respectively.

BSE code: 500696